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QUEST MEANS BUSINESS

Ukraine PM Resigns; Ukraine's Economy; Ukrainian Opposition; Next for Ukraine; Emerging Markets Turmoil; Dow Rebounds; Bruised Apple; Ford Payout; Angry Birds Spying Claim

Aired January 28, 2014 - 16:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


(NEW YORK STOCK EXCHANGE CLOSING BELL)

PAULA NEWTON, HOST: Well, what a relief. The closing bell rings on Wall Street and the Dow finishes firmly in the black. It's Tuesday, January the 28th.

Ukraine's government is out. Tonight, one Ukrainian billionaire says he's ready to lead a new government.

A rotten day for Apple. The share price takes a sharp drop on Wall Street.

And ruffling the NSA's feathers. How Angry Birds is being used by government spies.

I'm Paula Newton, and this is QUEST MEANS BUSINESS.

Good evening. Tonight, it's sub-zero temperatures in Kiev, but protesters are refusing to move. That's despite significant concessions from the government. President Viktor Yanukovych has accepted the resignations of Prime Minister Mykola Azarov and his entire cabinet.

Now, that announcement came as parliament voted overwhelmingly to repeal anti-protest laws that were passed earlier this month. People demonstrating out on the streets say the concessions are merely a step in the right direction, but not everything they want.

Now, in Brussels, European leaders met with Russia's president. The EU -- EU's Herman Van Rompuy called for restraint in Ukraine on all sides. Vladimir Putin and Russia will not revise the conditions of any loans for gas price discounts to Ukraine.

(BEGIN VIDEO CLIP)

VLADIMIR PUTIN, PRESIDENT OF RUSSIA (through translator): At this point, since nobody knows what the next government in Ukraine will be, no one could say anything about its future economic strategy. However, we will abide by our commitments.

(END VIDEO CLIP)

NEWTON: Ukraine's crisis was triggered by President Yanukovych's decision to spurn closer ties with the European Union in favor of Russia. Now, the heavily indebted former Soviet republic faces two stark options: stick with Russia or sidle up to the EU.

Now, the Russia option. In December, Russia agreed to buy $15 billion of Ukraine's debt and slash the price of gas. The deal enraged Ukraine's opposition and sparked protest. Ukraine's other option, seek financial aid from the EU and the IMF. Talks with the IMF broke down last year.

Ukraine's outgoing prime minister, the one who just resigned, told Richard Quest in Davos last week that the IMF's conditions would have been disastrous for Ukraine.

(BEGIN VIDEO CLIP)

MYKOLA AZAROV, OUTGOING PRIME MINISTER OF UKRAINE (through translator): And these conditions would mean even worsening of the economic situation in the state, like that is in Greece and other countries. Greece cannot get out of crisis for six years.

So should we have implemented the comprehensive measures suggested by the International Monetary Fund, we would have faced a terrible economic crisis in the country.

(END VIDEO CLIP)

NEWTON: Just before we came to air tonight, I spoke with Petro Poroshenko. He's a Ukrainian billionaire and politician whose name has been mentioned as a possible candidate for prime minister. I asked him if he will be Ukraine's next prime minister.

(BEGIN VIDEOTAPE)

PETRO POROSHENKO, UKRAINIAN POLITICIAN AND BUSINESSMAN: I think that we should make the question the opposite one. Is the opposition ready to take responsibility for the whole situation in the country? And my answer would be yes.

But if we would take responsibility, that means that we will form the government. And one of the representatives from the opposition, we have several potential candidates, are ready to be a prime minister to do the absolutely necessary reform, to keep democracy or to bring back democracy to Ukraine, to sign association agreement, to relieve the political prisoner, to restore the cooperation with the European Union and the United States.

And most important thing, we are promising security for the people, democracy for the people, provide free and fair elections. We have a lot of things to be done from now.

NEWTON: And yet, none of this has really done anything to shore up Ukrainian economy. Many people believing you guys are on a dangerous position right now. How significant is it that President Putin said that no matter who's in power in Ukraine, his $15 million loan stands, as does those discounts to energy prices for Ukraine?

POROSHENKO: That's a very important message come today from the EU- Russia summit. And I think this is a very important compromise and very important message, which gives us the opportunity for facilitating to find that compromise.

I think that the Ukrainian economy is in real danger, but not because of the action that's going on for 70 days, but because of the huge volume of the corruption, because of the extremely bad investment climate.

Because of the enormous budget deficit, because of the enormous pressure of the foreign debt and absolute mismanagement of Ukrainian government. We don't have an independent court, we don't have the industries and competition should be built for running a normal economy.

And that is actually the main problem, which from the very beginning put people out of their houses on the protest. When President Yanukovych and his team changed his mind and stopped signing -- the process of signing the association agreement.

Because the association agreement for my country is the only way how to modernize my country, the only way to improve legislation, to remove corruption, and to build up absolutely -- to use absolutely unique opportunities which Ukraine has to develop their economy.

That's why I'm absolutely confident that with the cooperation of the European Union, restoring the memorandum for cooperation with the International Monetary Fund, providing the investor confidence, we can significantly improve the budget and financial situation for Ukraine.

And without doing any of that, today, the famous S&P agency lowered the rating for the Ukraine sovereign paper to CCC plus. This is a very dangerous zone, and that would be another motivation for our government and for our authorities to be much more flexible in negotiation with Ukrainian opposition, Ukrainian people, and Ukrainian Maidan, which is behind my back.

(END VIDEOTAPE)

NEWTON: Significant comments, there, from Mr. Poroshenko, live from Kiev just a few moments ago. Now, to talk about what's next for Ukraine, we're joined by William Green Miller. He is in Washington. He is a former US ambassador to Ukraine.

Thank you so much for joining us on what must be a very dramatic night in Ukraine tonight. Many in that country wondering where the country is going next. From all the developments that you've heard throughout the day, do you believe the country's in better shape today to move away from the brink, to strike that compromise that so far has been so elusive?

WILLIAM GREEN MILLER, FORMER US AMBASSADOR TO UKRAINE: I certainly think so. And what Petro Poroshenko just said is the right agenda for the new government, and I very much hope that he'll be a part of it. I think very well of him, and he certainly has been part and parcel of the political and economic experience of the newly-independent Ukraine.

We have to understand that the country is a new country, coming out of the ruins of the Soviet Union, and a new democracy and they've made many, many mistakes, but they have also significantly laid out the course that the majority thinks should be the path of Ukraine.

NEWTON: And yet, to just interrupt there for a second, and yet, President Putin today saying that look, I'm going to keep that $15 billion in place for the Ukrainian people, no matter what government comes into place. How significant were his comments today?

MILLER: Well, I think that's very helpful. And the EU, I'm sure, will work with Ukraine, particularly if it commits itself to the kinds of reform that Petro spoke of just a few minutes ago. And certainly, that's what the Maidan people want.

An end to corruption, the thieves to jail, and a democracy that reflects the needs and will of all of the people, not just a few.

NEWTON: What you seem to be indicating is that we could be at a transformative moment. But is it really going to be that easy? I'm not saying that 70 days of protest isn't impressive, that the protesters haven't been through a lot, but we're talking about entrenched interests in Ukraine that are staring, perhaps as you say, jail time, prosecution in the face. Are they really going to relinquish power that easily?

MILLER: No, they're not going to relinquish power easily. But they've been confronted with a protest that speaks to the realities of Ukraine. It has been led by a corrupt government, and that's what they're protesting.

It's not primarily alliance with the EU as opposed to Russia. It's more about the nature of their system of governance. They want a clean government. They don't want elected officials or governmental officials to enrich themselves from the public coffers. They want a decent government and a rule of law that reflects a fair system of justice.

NEWTON: Now, this whole protest started over the fact that there were two ways forward, one to align with Russia more closely and one to the EU.

Do you believe that there is a way forward for Ukraine that can still have that close relationship with Russia that historically has always been there, and out of necessity, from an energy point of view, but still trade with the EU? Still become part of that EU bloc?

MILLER: Yes. I think that is the destiny of Ukraine, being a borderland country between East and West. They certainly have extensive trade and cultural relations with Russia. But they also have trade and cultural relations with the West. And there's no reason in a time of peace why they can't have a normal relationship with both Russia and Europe.

NEWTON: It's been the challenge so far. We'll wait to see how it turns out in the coming days and hours. Thank you so much for joining us. Appreciate it, your time.

MILLER: It's a pleasure.

NEWTON: Now, investors are watching developments in Ukraine. The revolution of the -- the evolution of the crisis there may still stabilize the turmoil in emerging markets. Ukraine's currency rebounded from four- year lows Tuesday following the prime minister's resignation.

However, as we heard earlier, the country's credit rating was cut by Standard & Poor's. Elsewhere, India unexpectedly raised interest rates by -- get this -- a full 25 basis points to 8 percent. The central bank had warned there is a clear risk of contagion surrounding the emerging economies.

And Turkey's central bank, officials are meeting at this moment. An interest rate hike is expected from them as well. The statement is due in around 45 minutes, and if we get it, we will bring that to you.

Coming up on QUEST MEANS BUSINESS, the Apple may not fall far from the tree, but boy, it could face a big drop on Wall Street. A closer look at its rough day on the markets.

(COMMERCIAL BREAK)

NEWTON: Stocks look like they are bouncing back slightly -- ever so slightly -- after a very tough month. Alison Kosik now joins me live from Wall Street. Alison, everybody I could feel kind of exhale today. There seems to be some good numbers there, and they seem to be solid, not like yesterday, jumping all around.

ALISON KOSIK, CNN BUSINESS CORRESPONDENT: Exactly. And a lot of the reason you saw the Dow get that boost today was because of some upbeat earnings. For one, from Pfizer, that actually led the gains. That's after Pfizer beat profit forecasts in the latest quarter. Caterpillar also added to its gains from yesterday.

Now, also, there could be a little bit of that good news -- or that bad news is good news effect here, because we did get a pretty lousy durable goods order report. Those are orders for those big ticket items, like cars and appliances. Those orders fell 4.3 percent in December. Now, Wall Street had expected a rise.

The thinking is that the Fed may be taking this into account at their meeting that starts today and maybe, people are thinking, maybe the Fed won't accelerate the pullback in stimulus any further. Paula?

NEWTON: Yes, we've seen how that worked out before, those assumptions. We'll leave that alone for now. We'll wait to see --

KOSIK: Right.

NEWTON: -- what the Fed does tomorrow. We do, of course, need to talk about Apple. And stay with me, Alison, even though it is going to get ugly now. Apple shares fell down sharply today after weaker-than-expected iPhone sales.

Now, despite posting record numbers for sales of both iPhones and iPads, the tech giant fell short -- yes, short -- of analysts' expectations, and investors are clearly unimpressed. We see the share price dropped at the opening of the bell by 7 percent.

It staged a slight recovery shortly afterwards. Partially the reason came, apparently, at 11:00 AM. And this is why: billionaire investor Carl Icahn revealed he'd picked up half a billion dollars worth of stock.

He continues to think that Apple is in a good position to maintain its lead in the sector. He said on Twitter, "My buying seems to be going neck- and-neck with Apple's buyback program, but hope they win that race."

Now, Alison, to go back to you, I've heard so many different things from different analysts. Up, down, where is Apple going? What is the consensus there on the street, or is it just way too much of a wait-and-see attitude? Let's see what Apple has in its back pocket in next few months?

KOSIK: Well, not many investors are actually waiting. They're selling, clearly, with Apple shares losing 8 percent today. Well, Carl Icahn saw it as a buying opportunity because shares were down so low.

I think as a collective, what Wall Street is looking for is the future of Apple, meaning they really want to see a new category of product. They don't just want to see an upgrade of the iPhone or an upgrade of the iPad, they want to see something different.

So, there have been rumors that there could be a full TV on the way, there could be wearables on the way. But Tim Cook in this earnings report was very cagey as usual. He confirmed the company is working on new products for the end of the year, but he gave no further details. In true Apple style, being very, very secretive about the very information that Wall Street wants to hear. Paula?

NEWTON: And yet, Alison, not many people have faith that that secretiveness means that they have anything in that pipeline. We'll wait and see. Thanks so much for the update today.

KOSIK: You got it.

NEWTON: Appreciate it. Now, the Ford Motor Company will pay record profit-sharing checks to United Auto Workers members. The company has posted record profits in North American, 47,000 hourly US workers will get nearly $9,000. The firm plans to continue hiring workers in 2014.

At the same time, though, they're saying profits will be lower. I asked Ford's CFO, Bob Shanks, to explain all that.

(BEGIN VIDEOTAPE)

NEWTON: Ford just finished really what is one of its best years in history, 2013 a banner year. And yet, you seem to be a guy who's already over it, and you've been warning already on 2014. What in the future there gives you pause? And you've already telegraphed a lot of that to the markets.

BOB SHANKS, CFO, FORD: Yes, we did, back in December. And today simply reconfirmed the guidance that we gave for this year. And it's really around a few things. It's the unprecedented number of product launches that we have in North America and around the world and what that will mean in terms of cost and downtime as we change over facilities and so forth.

But we're also seeing a tougher pricing environment, particularly where the Japanese are strong because they're able to leverage the advantages that they have now with the much weaker yen. So, those are two of the things that we highlighted.

The third one probably is around emerging markets, which is something everybody's talking about these days. And particularly, we've highlighted rising risks in the case of Argentina and Venezuela.

NEWTON: And yet, you're having your troubles in Europe as well. That's a growing car market. What's going to turn it around for Ford in Europe in 2014?

SHANKS: Well, we announced a restructuring plan -- a transformation plan is what we call it -- in October of 2012, and we're actually right on plan. We improved our loss, if you will, in 2013 versus 12, and that's including half a billion dollars of restructuring charges.

We foresee a better loss, if you will, this year on the way towards a profit in 2015. So, very, very much on track with Europe.

NEWTON: So, still a transitional year, 2014, for Europe. If we move onto that F Series truck in North America, it's used to doing a heavy lift in earnings for sure. In terms of going forward, though, what can you tell investors about those new products in the pipeline and how hopefully you'd be diversifying a little bit more?

SHANKS: Well, we've already seen a lot of success in terms of our growth in smaller vehicles, both cars, utilities, and medium-sized as well, both in the United States, where we've seen our share grow, the coastal regions, and about three quarters of that improvement came from smaller vehicles.

And of course, we can't forget Asia-Pacific-Africa, where we saw 50 percent growth there this year, and that's almost all smaller to medium- sized vehicles. So, we think that we've done a lot to strengthen our lineup right across the board, and we're starting to see the evidence that, both in mature markets and also in the emerging markets.

(END VIDEOTAPE)

NEWTON: OK, coming up, Angry Birds, angrier users. How the NSA could be mining apps and games for your personal information.

(COMMERCIAL BREAK)

NEWTON: How much personal information are you giving out when you play games on your phone? Now, the latest allegations from former NSA contractor Edward Snowden say spy agencies are using apps like Angry Birds to learn intimate details about your private life.

According to newspaper reports, the US National Security Agency and its UK counterpart, GCHQ, have been taking advantage of what they call leaky SmartPhone apps, depending on what profile information a user has supplied.

The leaked document suggests the agencies could collect key details from a users life, like current location, if you're married or single, how much money those households earn, even your sexual orientation. Pretty soon they're going to tell us if they know we had an argument with our spouses.

In response, the CEO of Angry Birds maker Rovio Entertainment, came out fighting. Mikael Hed said, "We do not collaborate, collude, or share data with spy agencies anywhere in the world. In order to protect our end users, we will, like all other companies using third party advertising networks, have to reevaluate working with these networks if they are being used for spying purposes."

Joining us from California, now, is vice president of security software company, McAfee, it's Michelle Dennedy. Thanks so much for joining us, appreciate it. And boy, are we glad to have you on this evening.

We had so much discussion about this today. If you can just give us, briefly, the nuts and bolts of this. If I'm playing whatever game on my SmartPhone, how can a spy agency use that and get all that material that we just described?

MICHELLE DENNEDY, VICE PRESIDENT, MCAFEE: Well, it's a great question. And it's not just spy agencies. What you really want to do when you're downloading that game in the first place and after you have that, look at your settings on your SmartPhones, please.

In California, it's required that they have a privacy policy. And if they don't have one, that's a red flag right there. Look at what you're sharing, look at what they're asking.

So, in your intro, perfect example, your marital status. To throw fake pigs at fake blocks, you don't really need to tell people whether you're single or not. So, just don't include that information.

NEWTON: And yet, so many people do, and now the worry is that inadvertently it can end up in the hands of government, for whatever reason they want to use it for. But is this also a back door into our internet lives? Meaning we decide to download these apps and we again are making ourselves vulnerable, more people in on our personal information on the web?

DENNEDY: Absolutely you are. And it really is -- I think "leaky" is the right word. I think some of this collection is potentially unintentional. Sometimes it's a smaller group, it's not a formal company that's making these applications.

So absolutely, you as the users, you as the owner of your own information, have to be very proactive here. Understand what's on your device, whether it's a small screen or a large screen, understand what goes into the making of that type of application.

Now, that doesn't mean you have to go out and learn electrical engineering. What it does mean is that you want to take a second and just pause as you're downloading, making sure that your contact lists aren't connected to those applications, for example.

Making sure in your contact list you're not doing things that make me crazy, like having password as one of your contacts and then listing all your passwords in the clear. You should absolutely not be doing that.

Because some of these app developers are not doing things with integrity, intentionally or unintentionally, and they'll flip that password contact right up and off you go, you've exposed yourself.

NEWTON: It's an interesting debate, as well. We've heard a lot from technology companies about the fact that they don't like what the NSA is doing, but at the same point here, us, we as the end users, it doesn't really matter, does it?

Because the commercial enterprises are doing the same thing as the NSA, right? They are basically grabbing as much personal information that they can, mining that data, to use it to advertise to us, right?

DENNEDY: Not just to advertise. This really is the information economy, and just like any other piece of currency in any other type of economy, information is king here. So, we're trying to gather it, companies are gathering it, governments are gathering it, individuals are grabbing information.

Just think about what you do even on your social networking and being able to literally peer into the lives of your friends. So, information is king here, and I think that's why it really is time for us to take note and start literally engineering privacy into your info economy, your personal info economy, and at work, and with our governments. That's the dialogue, I think we're ready to have it.

NEWTON: And definitely a continued dialogue as well about regulation in this area. Michelle, thanks so much, it's really been valuable having you on to just kind of explain some of the nuts and bolts. Appreciate it.

Now, coming up on QUEST MEANS BUSINESS, all eyes on Obama's State of the Union speech later tonight, and closing the gap between America's rich and poor seems to be his main focus. Where it all stands, it's just ahead.

(COMMERCIAL BREAK)

NEWTON: Welcome back, I'm Paula Newton and here's the check of our top news headlines this hour.

US Vice President Joe Biden has urged Ukraine's president to find a peaceful solution to the current crisis. It follows the resignation of the country's prime minister and cabinet earlier Tuesday. Speaking to me on QUEST MEANS BUSINESS, the Ukrainian billionaire Petro Poroshenko told me he would accept the prime minister's job if it was offered to him.

Former Egyptian president Mohamed Morsy has appeared in court in Cairo. He and dozens of co-defendants are accused of breaking out of jail in 2011 before he became president. This is just one of the trials the ousted leader is facing. The hearing was adjourned until next month.

The former Bosnian-Serb army chief, Ratko Mladic, has refused to answer questions at the war crimes tribunal of Radovan Karadzic. Mladic denounced the UN-backed court as Satanic. Both men are charged with war crimes for their roles in the Bosnian War.

Syrian peace talks ended the day early at an impasse after the morning session in Geneva. UN mediator Lakhdar Brahimi says it was a difficult day and that he should expect more of the same ahead. There was no movement on lifting the siege around the Syrian city of Homs to allow humanitarian aid. Talks resume, meantime, on Wednesday.

US president Barack Obama will deliver his State of the Union speech in just a few hours. He'll lay out his expectations for the year ahead. The White House says priorities include raising the minimum wage and retaining Democratic control of the US Senate. CNN will air that speech live.

NEWTON: Now as we mentioned, just a few hours from now the U.S. president's annual state of the union address. Barack Obama is expected to place a heavy emphasis on the growing income gap in the United States. It's a problem the President seems keen to hammer home. The Whitehouse said earlier that he plans to use his executive powers to raise the minimum wage for federal workers. Poppy Harlow joins me live in studio. Poppy, how many times can we go over the -- you know --

HARLOW: Yes.

ANN VALDEZ, LIVES IN POVERTY: -- the intricacies of this, and I know that you've done something to really try and get to the people who are -

HARLOW: The personal.

NEWTON: Yes, exactly, the personal part.

HARLOW: The personal story, because we'll hear from politicians on both sides tonight -- the President and then the GOP responding, and a big focus is expected to be on income equality. This coming from President Obama 50 years after President Johnson gave his famous speech on the war on poverty. Well today in the United States, there are nearly 47 million Americans living below the official poverty line. That includes about 16 million children. One of those people is Ann Valdez. She's the mother of three. We first met her back in 2010. We've been tracking her for four years, and we just went back to see how she is getting by and she told me she doesn't want more money from the government, she wants something else.

(BEGIN VIDEOCLIP)

HARLOW: Fifty years ago, this country launched a war on poverty. Has it worked?

ANN VALDEZ: No.

HARLOW: We first met Ann Valdez four years ago. She was living with her children in this public housing complex, just like her mother and her grandparents had..

VALDEZ: Poverty really is very serious. It's very demoralizing, --

HARLOW: Welfare and food stamps got her by, barely, as she looks for work. We came back a year later to see how Ann was doing. Has the situation gotten better for you?

VALDEZ: No, it actually hasn't changed very much.

HARLOW: When we met Ann's son Brian in 2011, he told us this is what he wanted to see.

BRIAN VALDEZ, ANN'S SON: The senator, the congressman, even the mayor come down here, see what's going on -- see how destroyed these neighborhoods are to spirits of these people. They are completely gone.

HARLOW: A long struggle with scoliosis Ann says means she can't do certain jobs

VALDEZ: If I get a minimum wage job, it's still going to leave me to have to apply for Medicaid and food stamps. So I'm still dependent on the system.

HARLOW: Dependent on the system. Hers is just one of the stories of the nearly 47 million Americans living in poverty, 50 years after President Johnson declared war on it. This cycle of poverty has taken its toll on Ann Valdez.

VALDEZ: I'm 47 years old trying to raise my family, trying to set an example, and I tell them how important education is, perseverance. And it's difficult because they look at me and say, 'Well, look at you. Here you are still fighting and you can't get job.'

HARLOW: Her unemployment benefits ran out years ago. Today, Ann says she gets $290 a month in public aid, $347 in food stamps and her rent is subsidized. But years of welfare hasn't helped her climb out of poverty. If this isn't working, what do you need?

VALDEZ: If you teach people how to do certain skills, then you're more likely to be able to obtain a position and maintain it. I'm not asking for them to raise the check. What I'm asking is for them to make more opportunities.

HARLOW: An opportunity she hopes will come from education. She's still not employed but she's in school part-time and will try to find administrative work once she finishes. Do you think things are going to change for you?

VALDEZ: I know they're going to change.

HARLOW: As the years go by, though, it's harder to see where that change will come from.

(END VIDEOCLIP)

HARLOW: And the last time that Ann worked full time was back in 2002, so it has been 12 years. She has two years of college, but now her 31- year-old son who lives with her lost his job, Paula.

NEWTON: No.

HARLOW: Her 15-year-old son feels like he should be working to help the family. She wants him to focus on school, and you have a family that for three generations now has been living a cycle of poverty. So how do you stop it?

NEWTON: They would look towards Barack Obama.

HARLOW: Yes.

NEWTON: They supported Barack Obama. What do they look for now -- this is five years into his government now -

HARLOW: Sure.

NEWTON: What are they looking for.

HARLOW: She is -- when I first spoke with her -- was a big champion of President Obama -- very hopeful. She still is a supporter of his but she said it is all this red tape/bureaucracy she cannot seem to get through to get the education she needs. She's in school part-time, I mean she's trying. But she kept emphasizing, I don't want more money/another handout. -- a lot of people think that's what I want. What I want is more aid. But we were just looking at the numbers, and the poverty rate of about 15 percent, and this country hasn't really budged during President Obama's term -- the first term or this term. And it is at 15 percent or above for three consecutive years. It's the first time it's been that way since 1965. So we've got a real problem.

NEWTON: Incredibly depressing especially when we talk about how well people are doing at the top and -

HARLOW: The divide.

NEWTON: -- the fact that -- yes. A continuing issue in this country. Pop -- Poppy, thank you so much -

HARLOW: Sure.

NEWTON: -- for that personal story. Appreciate it. Now CNN, as we were telling you, will bring you comprehensive coverage of President Obama's state of the union address. Our anchors Wolf Blitzer, Anderson Cooper and Jake Tapper will be leading our coverage which kicks off before the address in around three and 1/2 hours from now in Washington.

Now, Yahoo's numbers are out. The company reported results after the closing bell. Adjusted earnings 40 cent -- 46 cents per share beat Wall Street's estimates but sales and profit both fell. Yahoo shares are down around 5 percent. Now, the United States isn't the only union going through tough economic times. After the break, Richard Quest hears about the state of the European union from the commission president Jose Manuel Barroso.

(COMMERCIAL BREAK)

NEWTON: Well it's only been a matter of months since Croatia joined the European Union, and already it's in trouble over its budget. E.U. finance ministers were meeting in Brussels today. They've given the Croatian government two years to fix its deficit which is well above the E.U.'s 3 percent target.

As one president prepares to give his state of the union address in Washington, another president is striking an optimistic tone -- the head of the European commission, Jose Manuel Barroso says it's up to Europe's politicians to sell the E.U. project to its people at the World Economic Forum in Davos. He told our Richard Quest there was much less talk of crisis.

(BEGIN VIDEOCLIP)

JOSE MANUEL BARROSO, EUROPEAN COMMISSION PRESIDENT: The atmosphere some time ago was completely different. People were speaking about Greek exit. Now Greece has a primary surplus. People were speaking about the importance of Euro. We just welcomed a new member, Latvia, in the Euro. People were speaking about the periphery countries -- Ireland had a great success in exiting the adjustment program. Portugal exit the adjustment program. Spain was successful in its program for the banks. So, the most exposed countries have been doing a great, great, great effort, regaining competitiveness, and others are also doing something that was unthinkable some time ago, and at the same time we have now almost completed -- not yet, but almost -- the architecture of governance in Euro area, namely in terms of the banking union. So, my message is the following -- if we are to reduce unemployment, we have to keep up the reform momentum and also at the national level that (inaudible) have to conclude the job we have (inaudible).

QUEST: Now, I'm getting tough on this one.

(LAUGHTER)

QUEST: Because everybody's saying keep up the reform, keep up the reform -- structural reform. What do you mean by keep up structural reform?

BARROSO: For instance, --

QUEST: Yes?

BARROSO: -- labor market reform to make labor markets more flexible. Sometimes there are legislation in some countries that apparently defend workers, but in fact, they make it difficult to hire because of companies not going to risk hiring people if they believe that afterwards they cannot adapt to demand -- these are good example. Another thing is reform in terms of increasing the age of retirement, and that, many countries have already done -- impressive. Going up somewhere to 65 to 67 years, because in Europe we need more work, not less work. Another thing is to reform the internal market -- product market reform -- to dismantle some barriers that still exist in terms of services. And that could go on and on.

QUEST: You've given us a good idea -- the practical stuff. What are the issues, though, in the next year? Is this question of the relationship between the member states and the union and then the commission and the institutions. It's predicated by David Cameron, others will come on board. But whether you like it or not, a debate is now about to begin.

BARROSO: I like debates. I think the (your opinion / European) has to be done democratically. In fact, you are going to have European elections, the elections for the European Parliament May, and my appeal is the following, mainly to the mainstream parties -- center right or center left. Let's engage, let's have the courage to speak for Europe, let's explain that Europe was not the cause of the problems, that Europe is part of the solution. And because there is a danger I want to make clear -- there are now (extra / exterior) responses from the far right, sometimes the far left, that in fact are not only (inaudible) are ultra-nationalists.

QUEST: But every time I read your state of the union, which I always do, you're quite open and honest about saying Europe needs to move closer together. And even -- we can argue whether it should be a federated or a more -- closer -- union. Whatever phraseology that's not controversial. But you are quite clear, are you, that the future has to be a more federal arrangement?

BARROSO: Certainly we have to have a much more integrated Europe, at least for the Euro area. We have seen during the crisis that I receive many questions not only from political leaders all over the world -- from the United States to China and Japan -- about the political and commitment of leaders to do it more integrated. Because currency at the end -- the solidity and credibility depends on the credibility of the institutional setting behind. So, at least for the Euro area we need more integration, but we have to do it in a way that we keep everybody European -- including, by the way, our British friends.

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NEWTON: Right now, Mr. Barroso's British friends are breathing sighs of relief. Official figures show last year Britain saw its fastest rate of growth since 2007. Gross domestic product expanded by 1.9 percent in 2013. That's a huge jump from just .3 of a percent in 2012. The figures have left economists more optimistic about the prospects for the British economy.

Now, belt-tightening on a royal scale -- that's what's needed apparently to sort out Queen Elizabeth's trouble hit household accounts. A report out Tuesday says the British monarch is down to her -- get this -- last million pounds. That's just over $1.6 million dollars. I know that still sounds like a lot of money, but it's nothing, and the report says Buckingham Palace is crumbling because there isn't enough cash to repair it. The famous tourist attraction has a leady roof, with water dripping on the priceless paintings. Asbestos also needs to be removed from walls and the 300-year-old building hasn't been rewired since 1949. Well it's just the proper shack, isn't it? The Queen has now been told she must cut costs and find ways to boost her coffers or run into the red. CNN's royal correspondent Max Foster has more on the troubles of the royal purse.

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MAX FOSTER, ANCHOR AND ROYAL CORRESPONDENT FOR CNN INTERNATIONAL: The Queen has been overspending according to an influential Parliamentary committee, forcing her staff to dip into the palace reserves which now stand at an all-time low of $1.6 million. To say money, the palace has put off repair work, leaving a number of palace buildings in a dangerous state of disrepair.

MARGARET HODGE, BRITISH PARLIAMENT MEMBER, LABOUR: The sort of thing we're talking about is the boiler in Buckingham Palace -- it's six years old, it needs replacing. If you don't replace it, your bills go up. That's not (inaudible) happening. The Victoria and Albert Mausoleum, a really important heritage site was known for 18 years that it needs repair. They still haven't got a plan to tackle that.

FOSTER: The Palace responding by saying a significant financial priority for the royal household is to reduce the backlog in essential maintenance across the occupied royal palaces. The Parliamentary Committee pointed out that the royal household had escaped cutbacks in other parts of the public (inaudible) by only reducing spending by 5 percent over six years. The committee suggests a number of household staff should be cut, and the palaces opened up to more paying tourists to raise money. Max Foster, CNN London.

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NEWTON: Now I can't think of a better person -- Jenny Harrison is at the International World Weather Center. You've got a lot of weather to talk about including Atlanta, but very quickly, does the Queen not have money in that purse she carries around all the time? Is she not worth hundreds of millions of dollars?

JENNY HARRISON, WEATHER ANCHOR FOR CNN INTERNATIONAL: You know she carries no money, Paula, she never has any money -- I don't know, the Queen, my goodness. There is does sound like a right old dire straits -- something for her and the family. But anyway, that aside, let's have a look at weather conditions --

NEWTON: Wow.

HARRISON: We need to start with conditions actually in the United States, the Southeast in particular because the snow and the ice and the rain has been coming down suddenly now for about the last sort of six hours, getting on forward. Now you can see, of course, all of this really sputting into areas such as southern Louisiana, southern Alabama -- all these places and onward towards coastal areas in North Carolina where we really do not generally see these sort of weather conditions. Now, the number of flights of course going up and up, but just a couple of hours ago, it was over 3,000 cancellations, and the bulk of them are in Atlanta. Conditions are really very, very dicey out there. That (inaudible) obviously a live shot of Atlanta Airport. There not a log going on as you could see. And not surprising too when you see the actual temperature, the problem really in a lot of the South is that there just isn't the equipment. None of these major cities have really invested in the equipment to actually keep traffic and the like moving because of course it is such a rare event.

But right now, it's -4 Celsius in Atlanta, -7 in Washington, the same in New York, and of course it feels colder in the wind. The advisories have been posted and they will likely stay in place right the way through into Wednesday as well, and you can just see it -- it's a huge wave in the Southeast where these warnings indeed in place. Now, it is moving fairly consistently eastwards as you can see, but it's still going to be a few hours before it really clears out of the picture sometime late Wednesday morning. For the most part and the snow is going to really continue to add up the next 48 hours

On top of what's come down already, another four centimeters in Atlanta, Raleigh in North Carolina 18 centimeters of snow and right the way on the coast you can see it -- and of course these are higher elevations here as well. But Macon in southern Georgia may be nine centimeters of snow and that doesn't account for the ice, because this is another huge concern. These are the sort of conditions you really just cannot travel in at all. So, if you're heading into the United States, well I have to tell you, you could have some problems certainly traveling, even getting into Atlanta in the next 24 hours. The temperatures on Wednesday may be just about getting above freezing, but certainly the ice will be really causing the problems across this whole area of the U.S. in the next few days, of course temperatures so much lower than the average for this time of year.

We've got some very cold air in place across eastern portions of Europe and some very heavy snow in the mix across into the Southeast. just the last few hours -- 32 centimeters in Bucharest, Romania and there is even more to come too in the system as it continues to work its way eastwards. Again, the temperature's on the low side -- -5 in Bucharest, - 14 in Kiev. Then you factor in the winds, and look at these temperatures. It feels like -25, Berlin feels like -12 right now.

This is the system responsible -- this is bringing the rain, but that very heavy amount of snow as well and that colder air across areas in the southeast. And in the next 48 hours, adding to that 32, another 26 centimeters in Bucharest, and it will stay very cold. Moscow, for example, for the next few days, temperatures well below the average -- -19, the average is -6 and it's generally a very unsettled picture. And, Paula, to the west of Europe, we've got very heavy amounts of rain, some windy conditions and that means again some localized flooding, so there's a lot of weather out there.

NEWTON: Jenny, I want you know as well here in New York we are not laughing at you guys in Atlanta. We do feel very badly -- we know you're not accustomed to it, so I'm telling you, we feel for you.

HARRISON: Yes. It's the amount of people on the roads, Paula, that is the problem. Colleagues have been on -- I mustn't tell you actually -- some colleagues of mine have been on the road now for nearly five hours -

NEWTON: Oh.

HARRISON: -- they still have not got to work because the (inaudible) there's about six million people in downtown Atlanta or metro Atlanta trying to get out the city, it's been going on for hours. People have yet to make it in to work.

NEWTON: Unbelievable. Jenny, OK, we're going to keep our fingers crossed for everyone down there, and hopefully a couple of days as you said temperatures warm up. Appreciate it, Jenny. Thank you, now coming up a sheriff for the Bitcoin cowboys. New York entrepreneurs map a real future for the virtual currency.

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NEWTON: Two days of hearings on Bitcoin are underway in the U.S. New York's Department of Financial Services aims to better understand the virtual currency. The hearings come just days after Bitcoin entrepreneur Charlie Shrem was charged with conspiring to commit money laundering. Shrem is CEO of BitInstant, an exchange that allows people to buy Bitcoins. The exchange has financial backing from internet entrepreneurs Cameron and Tyler Winklevoss. At the hearing today, Cameron Winklevoss said Bitcoin should be regulated.

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Male: Starbucks or existing -

CAMERON WINKLEVOSS, BITCOIN INVESTOR: First saw Bitcoin, you know, about a year and a half, and just two years ago, I don't think anybody would deny that it was a bit of a wild, wild west because there was no regulation, there was no framework to evaluate the asset, evaluate companies, determine who was compliant, who was not. And a wild west, you know, attracts cowboys, and I don't think anybody here would disagree with the fact that a sheriff would be a good thing.

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NEWTON: Now, you'll remember the twins there from Facebook fame, and they certainly were early backers of Bitcoin. Now, I spoke to Jeremy Allaire, founder of Bitcoin payments company Circle who will testify at the hearings tomorrow. I asked him how Bitcoin can go mainstream when credit cards dominate so much of the market.

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JEREMY ALLAIRE, FOUNDER, CIRCLE: If you look at how electronic payments are handled in the world today, sort of every country or region has their own system for settling transactions. They usually take several days to settle. They're often built on technologies that are 30 or 40 years old and even the best methods we have today like credit cards, really still see an enormous amount of the kind of security and fraud risk. We've seen this with these data breaches recently. When you go into a restaurant and give out your credit card, when you buy something online with your credit card, you're giving out the keys to your bank account basically, and you're trusting every counterparty you interact with to be a custodian of that and to secure it.

And so, the combination of payment from any country, the ability to reduce fees to effectively zero and lowering the security risks is really attractive to business. And so you're seeing, you know, businesses and merchants really start to take interest. It's been still a challenge for them to really adopt it until consumer adoption takes place at a larger scale.

NEWTON: But it is counterintuitive because Bitcoin has been seeing a place where perhaps because it was unregulated, would be a place for criminals to go if they wanted to launder money, and yet you're saying exactly the opposite. Actually, Bitcoin, you're claiming, is going to be more secure for consumers.

ALLAIRE: I think it is. I think that you're -- you know -- the foundation of crypto-currency as they're called is sort of very advanced forms of cryptography and encryption, the same set of stuff that, say the NSA, uses to encrypt their own communications and transactions. That foundation is very powerful, and it's real advancement in representing really 20 or 30 years of computer science innovation.

NEWTON: Yet, don't you worry that as an ultimate currency it has those Libertarian roots -- so if you -- to use a turn -- you're kind of giving the finger to the financial institutions. By having this regulation -- New York will regulate, California will likely regulate -- they'll regulate in other jurisdictions -- isn't it just going to become like every other payment on the internet -- they use it (out)?

ALLAIRE: Right, I don't think so. I think if you think about the internet as a whole -- the internet has those Libertarian roots. We run the world on the internet now. We communicate freely with e-mail anywhere in the world. It's a decentralized, distributed system, no one controls it, but yet we trust that as our core communications platform for running our business. Likewise, with the web, these are technologies that no one controls, that are open and freely implementable anywhere in the world, and the fact that these are sort of open and sort of free to use technologies, has not prevented the ability to build kind of commercial platforms on top of them.

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NEWTON: Now most people have never even seen them in stores and already Google Glass is getting a redesign. Yes, the go-to glasses of the future already need a facelift. They will now be available on prescription spectacles -- a feature that users have been pushing for. A more fashionable look is in store for users. Google hopes it will boost the wearability of the face-mounted technology and, yes, there's the sunglasses option too -- too cool -- so that you'll never have to take a holiday without being connected. Now, that means one familiar Google Glass user is already in desperate need of an upgrade. I would say he always needs an upgrade (LAUGHTER). That's "Quest Means Business," I'm Paula Newton, and despite what Richard says, I will see you tomorrow.

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